Graziano Co. uses LIFO and their profit is running unusually high in the current year. Corporate tax rate is high this year but will decline significantly next year. In an effort to lower the current years net income and take advantage of the changing income tax rate, the President of Graziano Co. instructs the plant accountant to recommend to the purchasing dept. a large purchase of inventory for delivery three days before the end of the year. The price of the inventory to be purchased has doubled during the year, and the purchase will represent a major portion of the ending inventory value.

1. What is the effect of this transaction on this year

and next years income statement and income tax expense? Why?

2. If R. J. Graziano Wholesale had been using the FIFO method of inventory costing, would the president give the same directive?

3. Should the plant accountant order the inventory purchase to

lower income? What are the ethical implications of this order?